Zinc the metal for 2006

[rederob]

toothfairy
Unless we are watching every truck deliver to every ship that arrives at ports that hold LME inventory, we are all guessing.
But I prefer to think that LME street talk is usually on the ball when it comes to determining where large deliveries are coming from; particularly when the geography and delivery timeframes are so apparent.
And do we discount the possibility that China is trying to get its metal cheaper by "working" the system to its advantage?

 

[BREND]

Whether it is China merchant or other nations' who are delivering zinc inventory, I still see no reason to be bullish in this metal when inventory contnues to rise since the start of Dec 06.

 

[michael_selway]

Whether it is China merchant or other nations' who are delivering zinc inventory, I still see no reason to be bullish in this metal when inventory contnues to rise since the start of Dec 06.

you cant really base a decision one month worth of rises, and its insignificant amounts

thx

MS

 

[toothfairy]

And do we discount the possibility that China is trying to get its metal cheaper by "working" the system to its advantage?

Rederob
I know of instos "working" the system by dumping shares to push price down in the hope of buying back @ a lower price. That's OK for shares because if they fail & can't buy the same share back @ a lower price than there are many more others to choose from. As you have mentioned before, a commodity is a necessity (we assume that's the case for China) and they must buy it back without the flexibility of alternatives. That's quite risky and not that effective, as you sell, price goes down; when you buy back, price goes back up. Plus the hassle of transportation and uncertainties.

 

[chops_a_must]

you cant really base a decision one month worth of rises, and its insignificant amounts

thx

MS

And now more zinc capacity will be added in february:

http://www.optusnet.com.au/news/story/abc/20070116/13/business/1827720.inp

 

[rwkni1]

And now more zinc capacity will be added in february:

http://www.optusnet.com.au/news/story/abc/20070116/13/business/1827720.inp

Do you have any idea what the tonnage will be? I understand there will be no significant new zinc capacity (i.e. greater than 40ktpa) coming on line this year. Yes stocks have been rising, but the fundamentals suggest this cannot be sustained. The international zinc and lead study group forecasts zinc demand to increase 4.5%, or about 500kt. The only two major mines that were scheduled to come on line in 2007 were San Christobal (180ktpa) and Herald's mine in Indonesia (120ktpa). Herald's operation is unlikely to get up this year because of delays in getting government approval, and San Christobal has been delayed until well into the second half of this year. Also, according to a BNP note i saw today, the ILZSG have significantly increased their Chinese zinc demand forecasts for 2007. In my opinion, the only thing that could stop zinc is a huge uplift in internal production from China that the market is unaware of. If the next two months of data show China as a net exporter of zinc i may start to become bearish, but in the meantime, i'm not too concerned. Also, its worth noting zinc stocks are trading on such low P/E's anyway (ZFX around 4-5x), there should be limited downside in stocks.

 

[rwkni1]

Oh, and brend, this may be an explanation for the current increase in Chinese exports apparent in October's data...

http://smartkids.thestandard.com.hk/news_print.asp?art_id=31275&sid=10754417

 

[rwkni1]

.... and another...

http://greatinvestments.blogspot.com/2006/12/why-lme-zinc-inventory-depletion-has.html

 

[chops_a_must]

.... and another...

http://greatinvestments.blogspot.com/2006/12/why-lme-zinc-inventory-depletion-has.html

So you have read these articles and see absolutely no reason to become short term bearish on Zinc?



Strange...

 

[coyotte]

The 12 month Chart (spot) on Kitco is showing a classic Head & Shoulders Pattern at the moment.


Cheers

 

[rwkni1]

So you have read these articles and see absolutely no reason to become short term bearish on Zinc?



Strange...

The only reason for being bearish on zinc that has been voiced on this thread is that stockpiles are no longer declining at the rate at which they were for most of 2006. These articles offer an explanation as to why LME stock declines have flattened out in December, and the explanation is based on one-off factors. Nope, see no reason to bearish from reading these articles.

 

[chops_a_must]

The only reason for being bearish on zinc that has been voiced on this thread is that stockpiles are no longer declining at the rate at which they were for most of 2006. These articles offer an explanation as to why LME stock declines have flattened out in December, and the explanation is based on one-off factors. Nope, see no reason to bearish from reading these articles.

I can see one huge, glaring reason, that is very obvious to a novice such as myself. And that is, if inventories keep rising, even temporarily, it is possible to see the zinc spot falling to support around $3,000. Do you seriously think that if inventories keep rising, even temporarily, that it will have absolutely no impact on the spot price?

 

[rwkni1]

I can see one huge, glaring reason, that is very obvious to a novice such as myself. And that is, if inventories keep rising, even temporarily, it is possible to see the zinc spot falling to support around $3,000. Do you seriously think that if inventories keep rising, even temporarily, that it will have absolutely no impact on the spot price?

Chops – you’re missing the link between Chinese exports and the rising stocks. Almost all of the increase in zinc inventories you’re seeing on LME are the result of deliveries into the Singapore warehouse. Where have they come from? China. If inventories are rising because of a rebate that Chinese producers receive for exporting zinc, and not because demand/supply fundamentals have shifted, then rising stockpiles will not continue as eventually the metal from Singapore will have to be drawn upon to meet Chinese demand, which remains as robust as ever from all indications.

 

[chops_a_must]

Chops – you’re missing the link between Chinese exports and the rising stocks. Almost all of the increase in zinc inventories you’re seeing on LME are the result of deliveries into the Singapore warehouse. Where have they come from? China. If inventories are rising because of a rebate that Chinese producers receive for exporting zinc, and not because demand/supply fundamentals have shifted, then rising stockpiles will not continue as eventually the metal from Singapore will have to be drawn upon to meet Chinese demand, which remains as robust as ever from all indications.

That should have ended last year. But as we are seeing, for whatever reason, they have not.

 

[chops_a_must]

And to quote your source:

"Supply of zinc in the mainland has risen since Zhuye Torch and Baiyin Nonferrous Metals resumed production at their respective 200,000 and 100,000-tonne-per-year zinc plants last week. The plants were closed for repairs last month."

Funny how this coincided with the price spike.

And if we are going to be getting extra shipments of zinc from Alaska during Q1 (and we aren't even 3 weeks into Q1), then why wont there be a glut of zinc in the near term?

 

[rwkni1]

The rebate for lower grade products ended, but the rebate still exists for special high grade zinc, which is the only zinc product that can be placed on warrant on the LME. With the flood of lower grade material onto the market, users may have stocked up at a cheaper price, dampening demand for the more expensive high-grade LME stuff until all the low grade material is used. In the mean time, significant amounts of SHG zinc are still being exported from China because the rebate makes it attractive to do so. Of course this is just a theory, but i think it best explains why zinc stocks went from declining in an almost linear fashion for the most part of last year, to suddenly being on hold. There is no new supply and the least bullish analysts are forecasting demand growth in the realm of 3-3.5% in 2007, so supply/demand fundamentals don't seem to explain what we've seen in December.

 

[rwkni1]

And to quote your source:

"Supply of zinc in the mainland has risen since Zhuye Torch and Baiyin Nonferrous Metals resumed production at their respective 200,000 and 100,000-tonne-per-year zinc plants last week. The plants were closed for repairs last month."

Funny how this coincided with the price spike.

And if we are going to be getting extra shipments of zinc from Alaska during Q1 (and we aren't even 3 weeks into Q1), then why wont there be a glut of zinc in the near term?

The increase in supply you're talking about there is refined material, it does not represent any new zinc coming out of the ground. The concentrate market remains very tight and these smelters would be kick starting their operations again using stockpiled concentrates.

Not sure what you mean when you say funny how this coincided with the price spike.

The extra 25kt from Red Dog in 1Q07 is a fairly immaterial amount when you consider demand is increasing by 100kt per quarter.

 

[chops_a_must]

With the flood of lower grade material onto the market, users may have stocked up at a cheaper price, dampening demand for the more expensive high-grade LME stuff until all the low grade material is used. In the mean time, significant amounts of SHG zinc are still being exported from China because the rebate makes it attractive to do so.

The extra 25kt from Red Dog in 1Q07 is a fairly immaterial amount when you consider demand is increasing by 100kt per quarter.

"The world's biggest zinc mine, Teck Cominco's Red Dog in Alaska, had some delays in shipments in Q3, increasing their Q4 shipments significantly. Red Dog only can ship a few months out of the year because of their Alaskan climate, so the Q4 spike in zinc supply is much bigger than normal this year. Because of weather conditions, about 50,000 tonnes of zinc in concentrate that was expected to be shipped in Q3 2006 was delayed to Q4 2006 and Q1 2007, with 25,000 additional tonnes of sales in each quarter."

That is ON TOP of expected shipments.

I still see no reason why not to be short term bearish on zinc.

 

[rwkni1]

"The world's biggest zinc mine, Teck Cominco's Red Dog in Alaska, had some delays in shipments in Q3, increasing their Q4 shipments significantly. Red Dog only can ship a few months out of the year because of their Alaskan climate, so the Q4 spike in zinc supply is much bigger than normal this year. Because of weather conditions, about 50,000 tonnes of zinc in concentrate that was expected to be shipped in Q3 2006 was delayed to Q4 2006 and Q1 2007, with 25,000 additional tonnes of sales in each quarter."

That is ON TOP of expected shipments.

I still see no reason why not to be short term bearish on zinc.

I understand the extra 25kt is ON TOP of expected shipments. The extra 100kt of forecast demand is ON TOP of demand for the last quarter of 2006. Predicting short-term metal price movements is a tough game, who knows when those Asian customers will have used up all the low grade material dumped by the Chinese and draw-downs will resume at Singapore? It could be tomorrow or in 6 weeks. But, while indicators still point to demand exceeding supply for the forseeable future I won't be selling any zinc stocks.

 

[michael_selway]

I can see one huge, glaring reason, that is very obvious to a novice such as myself. And that is, if inventories keep rising, even temporarily, it is possible to see the zinc spot falling to support around $3,000. Do you seriously think that if inventories keep rising, even temporarily, that it will have absolutely no impact on the spot price?

For any current market price, theres always a large "future expectation" built into it.

So short term LME stocks can rise, but it may drop alot because peopel may think things will change, and whats happenning is only "once-off"

thx

MS